Is Dunkin’ Brands An Acquisition Target?

by Trefis Team
Dunkin' Brands
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The recent acquisition announcement of Costa Coffee by beverage giant The Coca-Cola Company (NYSE:KO) has led to speculation regarding Dunkin’ Brands (NASDAQ:DNKN) being a takeover target. These rumors have led to a marked hike in the latter’s share price. JAB Holdings, the company that bought Dr Pepper Snapple and owns a number of coffee brands such as Peet’s Coffee and Caribou Coffee, is supposedly under pressure and is seeking to strengthen its position in the segment, and is touted to be a possible acquirer. However, the acquisition of Dunkin’ Brands would come at a significant cost to anyone looking to buy the company. DNKN’s stock has had a steady growth this year post the release of its fourth quarter earnings in February, driven by decent growth in revenues and an impressive increase in earnings. This would, no doubt, result in an even higher price if the company does end up getting acquired.

Lure Of The Fast-Growing Coffee Segment

The key reason for the acquisition of Costa by Coca-Cola was the former’s strong expertise across the coffee supply chain, including sourcing, vending, and distribution, which would be a complement to existing capabilities within the latter’s system. Moreover, while Coca-Cola is a big player in the non-alcoholic ready-to-drink beverages industry, currently valued at $0.8 trillion, when you add the hot beverage market to this, the addressable market size jumps to $1.5 trillion. Furthermore, this segment is growing at a fast pace – 6% annually. In the face of this, it is no surprise that speculation regarding Dunkin’s purchase has arisen, which markets itself as an eatery chain that specializes in coffee. In 2017, Dunkin was a national QSR (Quick Service Restaurant) leader in servings in the hot regular/decaf/flavored coffee category and the iced regular/decaf/flavored coffee category, with sales of approximately 1.7 billion servings of total hot and iced coffee annually.

Based on Costa’s acquisition price of roughly 16 times the EBITDA, we have made an interactive dashboard titled What Is Dunkin’ Brands’ Potential Acquisition Price? According to our estimates, Dunkin’ Brands will generate revenues and EBITDA of roughly $1.32 billion and $525.50 million, respectively, in FY 2018. Consequently, the acquisition price would total a massive $8.4 billion. Moreover, given the fact that DNKN has tremendous potential to grow in the medium term, based on the ambitious store count growth the company has set for itself – the company aims to add 1,000 new restaurants by 2020 – the purchase amount could end up being even higher.

See Our Complete Analysis For Dunkin’ Brands


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